A few years back I bought a small, retail service business. It was a combination car wash/laundromat that had a manager and 3 part-time employees.
I bought this business from the bank, which had received it back after the original owner & loan-holder defaulted. For years the business had been run by a manager, while the absentee owner created financial chaos in the background.
The manager was constantly running low on available funds; patching, repairing and stringing vendors along as he went. The mechanical back-room of the operation was literally held together with duct tape and hope. The manager did the best he could under difficult circumstances, but he couldn’t stretch the money enough to hold back the maintenance avalanche taking place behind the scenes.
In contrast, the “front of house” portion of the business was immaculate. One of the things that attracted me to the business was how spotless the store was. Each time I visited prior to purchasing, the laundromat was CLEAN. It literally sparkled – and I learned “it’s so clean” was a comment staff got from customers on a regular basis.
It was clear from the outset that there were people that cared about this business – and Lois was one of them.
Lois was a hard-working, retired nurse who was a mostly pleasant employee. I say “mostly pleasant” because she did have occasional bouts of curmudgeon. She was one of those employees whose reaction you watched when you said “good morning” – you knew, from her facial expression, how the shift was going to go.
Lois was the Queen Bee of the laundromat. She was committed to keeping the place spotless and took genuine pride in the Store. Lois would go through each machine, each shift, with a small toolkit of brushes to clean out every piece of debris.
Given her small size, it was not unusual to find Lois almost entirely inside a machine, cleaning, scraping and scrubbing. She cared. All the time. And was a great employee, 98% of the time. I'll take those percentages any time. I liked Lois, and really appreciated the work she did for us.
Press 2 for Heavy Loads
But for me, Lois was not really on my radar for the first several months of ownership. The team of employees we had was stable, but this business was in serious financial turmoil. While the reduced price I’d paid for the business would make my load lighter than the previous owners, there was still a lot of change that would be required to achieve my goal for the business.
I intended to sell the business no more than four years after I bought it.
I purchased this business as a turn-around venture. I believed if I could correct some key elements, I could make it much more valuable within a short period of time. It was an experiment of sorts. I wanted to prove the validity of the steps I had taken to create value when I sold my first business, and this was a real-world opportunity to do that. That was the goal, but I couldn't afford for it to take very long. The business was eating money, and I didn't have that much for it to eat.
To make a future sale possible, the first thing I needed to do was increase the seller’s discretionary earnings generated by the business. We needed to make more money and keep more of the money we made. I needed to figure out how.
After assessing the operation for a few months, in addition to raising the prices, increasing marketing, and a couple of other financial items, I came up with a short list of critical operational changes.
- We needed to fix things right. More equipment up time meant more repeat customers and more revenue. No more duct tape.
- We needed to change one of the things that had attracted me to the business in the first place and lower our standard for cleanliness.
Use Hot Water Cycle to Get it CLEAN
Customers had raved for years about how CLEAN the store was, and staff took personal pride in that. But when examined, the reasons for the hyper-cleanliness pointed to the cause of our financial instability. You can only be CLEAN if you aren't busy.
Laundromats allow customers to clean something they own – and when they do that, it usually results in the store getting dirty.
I sat and watched in the first few months of ownership as our immaculate store was “trashed” (Lois’ word) by customers using the facility exactly as intended. When the construction crew rolls into the laundromat with 7 garbage bags full of soiled work clothes, I was thrilled to see them come. But the store cleanliness was worse for wear after they left. This sort of facility gets dirty if it’s being used – and if we were going to increase earnings it needed to be used a lot more.
The problem was that we were cleaning the store to achieve a pinnacle of CLEAN, and that wasn’t effectively serving customers, the bottom line, or my goal to sell the business.
Wash, Rinse, Repeat
Let’s talk shop for a minute.
To keep the store CLEAN the current manager was running three employee shifts a day. One in the morning at open (5 a.m.), one late afternoon (4 p.m.), and one after close (10 p.m.).
Essentially, we were double cleaning. The night shift was cleaning the property after the doors locked. Then in the morning, Lois would show up to clean again. She would often grumble about how the closing crew would fail to meet her standards for CLEAN, and she would work almost her entire shift, bringing the level from “pretty clean” to an admirable CLEAN level.
She’d leave, and the shop would get used, and go unstaffed, for the next 10 hours. Then in late afternoon a shift would arrive to mop up big messes, leaving the rest of the mess for the closing shift to handle.
Our current routine was:
A period of client use.
A period of client use.
This meant three shifts, but the night shift and the morning shift had no client use between them. This didn’t make sense to me. I thought it was a better option to:
A period of client use.
A period of client use.
No duplicate cleaning; shorter periods where the store went unstaffed, and we were able to cut out one staff shift entirely. Better for the store, the average level of clean, the customer, and our bottom line.
When I was finally ready, we pulled the staff together for a meeting and I explained our new goal: “not dirty”.
CLEAN was no longer the goal. Our new goal was to have the store spend as much time possible during the day being “not dirty”.
That might seem like a silly distinction, but it was significant for our operation and our bottom line.
We wanted an average customer to walk into the laundromat and not be “turned off” by the place being dirty. However, I didn’t believe that the average customer needed to be “turned on” by how spotless the store was. As we were usually unstaffed, CLEAN was out of reach. At best it was accomplished for a moment, until staff walked out the door and customers started using the place.
More importantly I reminded them, this business was failing financially. It might be great to have a CLEAN laundromat, but in our market the revenue didn’t justify the expense we were incurring to reach that standard. The business had to change.
The goal was no longer CLEAN, it was “not-dirty”, and we started working toward that new goal.
Lois Hated It
With the new standard and schedule, instead of spending time on detailed, meticulous, perfecting of the sparkle, Lois was forced to do things like mop the floor, clean up bigger spills, and maintain a basic level of cleanliness. To her credit, she did the new work with her usual energy and effort. She really tried.
The problem was she would reach the end of her shift and be unhappy. While the place would be much cleaner than when she’d started (and cleaner than our competition), it was well below her expectations. She was now producing the same “pretty clean” result that she had complained about other employees achieving.
She was frustrated. She thought the place looked “horrible”. She thought our customers would run away. And even though we continued to receive compliments from customers on how the place was the “cleanest in town” she just couldn’t handle the lower standards.
I didn’t fire Lois. I simple didn’t try to hire her back when she quit for the fifth time.
Remember how I mentioned Lois had a “curmudgeon” streak? It turns out that the routine before I bought the place, and repeated since, was that Lois would “quit” once every three months or so. She’d get frustrated with something minor going on at the store (low cleaning supply inventory, skipped task by an employee on another shift, etc.). I’d stop by the store to find a set of keys along with a note from Lois saying she quit.
I truly valued Lois’ work and commitment to the place (it was hard to find good staff given what we could afford to pay) so when this occurred, I’d reach out to her, we’d sit down, she’d vent her frustrations, ask for her job back, and I’d say yes.
Instead, this time when I swung by her place, I brought her last check and simply said “thanks so much for all the great work you’ve done for us” and let it go at that.
To be fair, I’ve shortened this part of the story. Lois and I had several conversations between the “change” occurring and when she finally quit. She made an honest struggle with the new standard, and I made an honest struggle to help her, but it was clear that she was not going to be able to make it fit. Her feelings about the importance of CLEAN outweighed any goal I had as the business owner.
I was sad to see her go. I genuinely enjoyed Lois, but the business results needed to change. What Lois cared about wouldn't let that happen.
Please Don’t Overload the Machines
Lois was a great employee. And in a different environment, I would hire her back in a second. The problem here was that Lois cared about something that wasn’t critical to creating transferable value in the business.
I wanted to sell the business in 4 years (It only took 3 1/2 for the sale to happen!). That goal (and my available capital) meant the bottom line needed to change quickly so we could build a track record of profitability for a potential buyer. The “not dirty” change allowed us to pull an entire staff shift from every day, while increasing the average cleanliness of the store. It lowered expenses and raised the average customer’s quality experience.
Selling the business wasn’t going to happen because of how clean we kept it. Even if a potential buyer appreciated the extreme cleanliness (as I had), it would be way down on the list of what they valued.
Deposit Correct Change Only
If you want to sell your small business, you must create transferable value. To do that, you must focus on the small number of elements that are critical to the sale of a business. You can’t afford to have employees like Lois, or to be like Lois yourself. And make no mistake, owners mess this up way more often than employees do.
Too many small business owners fool themselves into believing that “other things” matter when it comes to the sale of their business.
I can’t tell you how many businesses I’ve looked at as a potential buyer where the owner is like Lois – ferociously concerned about something that is important to business operations, but not critical to creating value in the business for me as a potential buyer.
“Our store is the cleanest in town” (clean is easy without customers).
“We’ve sold our product in 34 different countries” (1 or 2 sales in each country. No traction anywhere, but they enjoy coloring in countries on the map in the office.)
“Our customers LOVE our high level of service” (But we lose money on every customer because we over-serve them relative to our price.)
These are real measures and accomplishments. Things to genuinely be proud of. Cleanliness, international sales, customer satisfaction are all important. But they will not substitute for the critical elements that create real transferable value in a business. When it comes to selling a small business, these “important” things are ultimately distractions. Unfortunately, most small business owners don’t learn this until they try (and fail) to sell their business.
It’s not a crime to care too much like Lois did. It’s not even a crime to care too much about the wrong thing as the owner. But if you want to sell your business someday, caring about the wrong thing will kill your potential sale, and set-up a personal financial disaster.
Don’t confuse how much you care with creating real value in your business.
“No, we’re not profitable, but our customer service rating is higher than our competitors and that’s why our business is so valuable!”
Keep it simple. If you’re serious about building a business you can sell, don’t allow yourself, or an employee, to care “too much” about things that don’t create transferable value in the business.
Where does CLEAN need to become “not dirty” in your business?
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